[Podcast] Coronavirus, Recession, and Property: Who’s right – the pessimists or the optimists?

Today’s podcast is based on your questions: questions listeners have asked and the questions that our clients are asking us at Metropole. 

There’s still so much uncertainty about a recession and uncertainty about what’s going to happen to property values, so today I’m going to give my thoughts and leave you with more certainty and better direction.

We’ve been hit by a health crisis that’s led us into the most serious global recession in almost a century.

But there is some good news.

Recent events have left many of us feeling uncertain, but they’re also responsible for some of the best opportunities in our lifetime.

It may be your opportunity to realize financial independence. 

What’s going to happen going forward?

• Recessions are always periods of significant opportunity because they are a time of transfer of wealth
• The technical definition of a recession is two-quarters of negative GDP and while we’re not there yet, we’re in recessionary times.
• By the time we find out we’re officially in a recession, it will all be over
• I see a staggered, satircase recovery rather than a V-shaped recovery
• In the meantime, many will probably stash their  cash waiting for the news that we’re through the worst of things
• We entered this recession with a positive balance of trade, an almost-balanced budget, and a solid banking system in Australia
• We’re not seeing many mortgage defaults because in general, debt is in the hands of those who can afford it
• There will be higher unemployment for a while, but it’s likely it won’t be as bad as initially predicted
• Reduced wages will lead to less spending power for a time
• The real estate markets have slowed down. There are fewer transactions and fewer houses on the market. 
• The property market is starting to pick up, and there’s a flight to quality but there are \ great opportunities for investors prepared to take a long-term view
• Over the next few years, interest rates will remain at historic lows
• There will be a short-term window for those who want to get into property, as many are still sitting on the sidelines
• The Reserve Bank can’t lower interest rates any further, so governments will have to stimulate the economy with fiscal policy 
• Unemployment will likely be high for a couple of years
  • While some industry sectors will suffer, others will do OK
  • Tourism, education, retail, and maybe the financial sector will suffer
  • Government, manufacturing, technology, defense, agriculture, infrastructure, and healthcare will all do well

Some Recommendations:

1. Don’t overreact. Be careful not to get sucked in by the news and by the hype. Instead, think long-term. 
2. Don’t try to time the market, and don’t try to get a bargain. Just buy the best property you can in the best location you can in your budget
3. Before you get into property, make sure you have a solid foundation. Have financial buffers in place and talk to some experts about the right ownership structures to maximize your upside and minimize your risk

Links and Resources: 

Michael Yardney

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Some of our favourite quotes from the show:

“I see a staggered recovery as we move out of lockdown in stages.” – Michael Yardney

“Recessions are largely driven by how the population as a whole is feeling about the economy, more than what the economy itself is doing.” – Michael Yardney

“We know from previous downturns that before unemployment goes down, the property market starts to pick up. Rising property values always lead us out of recession.” – Michael Yardney

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